SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party Other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-
11(c) or Rule 14a-12
YP.NET, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.
Title of each series of securities to which transaction applies: N/A
(1) Aggregate number of securities to which transaction applies: N/A
(2) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
(3) Proposed maximum aggregate value of transaction: N/A
(4) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid: N/A
(2) Form. Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
YP.NET, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 2, 2004
To Our Stockholders:
The 2004 Annual Meeting of Stockholders of YP.Net, Inc. will be held at the
Sheraton Hotel, 200 North Centennial Way, Mesa, Arizona 85201, on April 2, 2004,
beginning at 10:00 a.m. local time. The Annual Meeting is being held for the
following purposes:
1. To elect five directors to the Company's Board of Directors to serve for
terms of one to three years or until their successors are duly elected and
qualified if Proposal 3 is approved, or to elect the same individuals as
directors for a term of one year if Proposal 3 is not approved.
2. To consider and vote upon a proposal to amend the YP.Net, Inc. 2003 Stock
Plan, which would increase the shares available for issuance under the plan
from 3,000,000 to 5,000,000 shares of common stock.
3. To consider and vote upon a proposal to amend and restate the Company's
Articles of Incorporation in the form attached as Appendix A to the
enclosed Proxy Statement (the "Amended and Restated Articles").
Specifically, the Amended and Restated Articles will accomplish the
following:
(i) change the corporate name of the Company to "YP Corp.";
(ii) provide for the classification of the Board of Directors into three
classes of directors with staggered three-year terms;
(iii) generally update the existing Articles of Incorporation to (a)
eliminate the designation of the Series A, Series B, Series C, and
Series D Preferred Stock since no shares of such Series have ever been
issued and the Board of Directors has recently retired such series,
(b) decrease the authorized Preferred Stock; (c) add language
concerning the indemnification of the Company's officers and
directors; (d) add language that upon dissolution of the Company, the
Company's remaining net assets are to be paid to holders of Common
Stock after any liquidation preference has been paid to Preferred
Stockholders; (e) clarify that the number of directors of the Company
may be increased or decreased as provided in the Company's Bylaws; (f)
limit the ability of stockholders to act by written consent; and (g)
require a supermajority vote of the stockholders to amend or repeal
some of the foregoing amendments; and
(iv) restate the Articles of Incorporation by incorporating in a single
document the new amendments, to the extent that they are approved by
the stockholders at the Annual Meeting, as well as prior amendments
and restatements.
4. To transact such other business that may properly come before the
meeting.
Stockholders of record at the close of business on February 19, 2004 are
entitled to notice of and to vote at the meeting or any postponement or
adjournment thereof. Your vote is important. In order to assure your
representation at the meeting, you are requested to complete, sign and date the
enclosed proxy as promptly as possible and return it to us via facsimile to the
attention of David Iannini at (480) 325-1257 or in the enclosed postage-paid
envelope.
By Order of the Board of Directors
/s/ Angelo Tullo
Angelo Tullo
Chairman of the Board
March 1, 2004
Mesa, Arizona
TABLE OF CONTENTS
-----------------
ABOUT THE MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
What is the purpose of the Annual Meeting?. . . . . . . . . . . . . . . . . . . . . 1
Who is entitled to attend and vote at the Annual Meeting? . . . . . . . . . . . . . 1
How do I vote?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
What if I vote and then change my mind? . . . . . . . . . . . . . . . . . . . . . . 2
What are the Board's recommendations? . . . . . . . . . . . . . . . . . . . . . . . 2
What constitutes a quorum?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
What vote is required to approve each item? . . . . . . . . . . . . . . . . . . . . 2
Can I dissent or exercise rights of appraisal?. . . . . . . . . . . . . . . . . . . 3
Who pays for this proxy solicitation? . . . . . . . . . . . . . . . . . . . . . . . 3
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Election of Directors (Proposal No. 1). . . . . . . . . . . . . . . . . . . . . . . 3
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Nominees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
How are directors compensated?. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
How often did the Board meet during fiscal 2003?. . . . . . . . . . . . . . . . . . 7
What committees has the Board established?. . . . . . . . . . . . . . . . . . . . . 7
EXECUTIVE OFFICERS AND COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Executive Officers and Significant Employees. . . . . . . . . . . . . . . . . . . . 8
Executive Compensation Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 11
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT. . . . . . . . . . . . . . . 17
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. . . . . . . . . . . . . . . . . 18
AMENDMENT TO THE YP.NET, INC. 2003 STOCK PLAN (PROPOSAL NO. 2) . . . . . . . . . . . . . 19
EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 23
AMENDMENT TO AND RESTATEMENT OF THE COMPANY'S ARTICLES OF INCORPORATION (PROPOSAL NO. 3) 23
STOCKHOLDER PROPOSALS AND NOMINATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 30
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ELECTRONIC DELIVERY OF FUTURE ANNUAL MEETING MATERIALS . . . . . . . . . . . . . . . . . 30
APPENDIX-AMENDED AND RESTATED ARTICLES OF INCORPORATION OF YP.NET, INC . . . . . . . . . A-1
YP.NET, INC.
4840 EAST JASMINE STREET
SUITE 105
MESA, ARIZONA 85205-3321
(480) 654-9646
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 2, 2004
This Proxy Statement relates to the 2004 Annual Meeting of Stockholders of
YP.Net, Inc. The Annual Meeting will be held on April 2, 2004 at 10:00 a.m.
local time, at the Sheraton Hotel located at 200 North Centennial Way, Mesa,
Arizona 85201, or at such other time and place to which the Annual Meeting may
be adjourned or postponed. THE ENCLOSED PROXY IS SOLICITED BY OUR BOARD OF
DIRECTORS. The proxy materials relating to the Annual Meeting are first being
mailed to stockholders entitled to vote at the meeting on or about March 2,
2004.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Annual Meeting, stockholders will act upon the matters outlined in
the accompanying Notice of Annual Meeting and this Proxy Statement, including
the election of five directors, the amendment of the 2003 Stock Plan, and the
amendment and restatement of our Articles of Incorporation. In addition,
management will report on our most recent financial and operating results and
respond to questions from stockholders.
WHO IS ENTITLED TO ATTEND AND VOTE AT THE ANNUAL MEETING?
Only stockholders of record at the close of business on the record date,
February 19, 2004, or their duly appointed proxies, are entitled to receive
notice of the Annual Meeting, attend the meeting, and vote the shares that they
held on that date at the meeting or any postponement or adjournment of the
meeting. At the close of business on February 1, 2004, there were issued,
outstanding and entitled to vote approximately 47,710,302 shares of our common
stock, par value $.001 per share, which are entitled to approximately 47,710,302
votes. You may not cumulate votes in the election of directors.
HOW DO I VOTE?
You can vote on matters to come before the meeting in two ways: (i) you
can attend the meeting and cast your vote in person; or (ii) you can vote by
completing, dating and signing the enclosed proxy card and returning it to us or
by the use of mail or facsimile. If you do so, you will authorize the
individuals named on the proxy card, referred to as the proxyholders, to vote
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your shares according to your instructions or, if you provide no instructions,
according to the recommendations of the Board of Directors.
WHAT IF I VOTE AND THEN CHANGE MY MIND?
You may revoke your proxy at any time before it is exercised by either (i)
filing with our Corporate Secretary a notice of revocation; (ii) sending in
another duly executed proxy bearing a later date; or (iii) attending the meeting
and casting your vote in person. Your last vote will be the vote that is
counted.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named on
the proxy card will vote in accordance with the recommendations of the Board of
Directors. The Board's recommendations are set forth together with a description
of such items in this Proxy Statement. In summary, the Board recommends a vote
FOR all of the proposals described in this Proxy Statement.
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
WHAT CONSTITUTES A QUORUM?
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the issued and outstanding shares on the record date will
constitute a quorum, permitting us to conduct our business at the Annual
Meeting. Proxies received but marked as abstentions and broker non-votes
(defined below) will be included in the calculation of the number of shares
considered to be present at the meeting for purposes of determining whether a
quorum is present.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. Election of a director requires the affirmative
votes of the holders of a plurality of the shares present in person or
represented by proxy, and entitled to vote at a meeting at which a quorum is
present. The five persons receiving the greatest number of votes will be elected
as directors. Stockholders may not cumulate votes in the election of directors.
Since only affirmative votes count for this purpose, a properly executed proxy
marked "WITHHOLD AUTHORITY" with respect to the election of one or more
directors will not be voted with respect to the director or directors indicated,
although it will be counted for purposes of determining whether there is a
quorum.
AMENDMENT TO 2003 STOCK PLAN. The approval of the proposed amendment to the
2003 Stock Plan will require the affirmative vote of the holders of a majority
of the shares represented in person or by proxy and entitled to vote on the
proposal. A properly executed proxy marked "ABSTAIN" with respect to this
proposal will not be voted, although it will be counted for purposes of whether
there is a quorum. Accordingly, an abstention will have the effect of a negative
vote.
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AMENDMENT AND RESTATEMENT OF ARTICLES OF INCORPORATION. The approval of the
proposed amendment and restatement of our Articles of Incorporation will require
the affirmative vote of the holders of a majority of our outstanding shares of
common stock. A properly executed proxy marked "ABSTAIN" with respect to this
proposal will not be voted, although it will be counted for purposes of whether
there is a quorum. Accordingly, an abstention will have the effect of a negative
vote.
EFFECT OF BROKER NON-VOTES. If your shares are held by your broker in
"street name," you are receiving a voting instruction form from your broker or
the broker's agent, asking you how your shares should be voted. Please complete
the form and return it in the envelope provided by the broker or agent. No
postage is necessary if mailed in the United States. If you do not instruct your
broker how to vote, your broker may vote your shares at its discretion or, on
some matters, may not be permitted to exercise voting discretion. Votes that
could have been cast on the matter in question if the brokers have received
their customers' instructions, and as to which the broker has notified us on a
proxy form in accordance with industry practice or has otherwise advised us that
it lacks voting authority, are referred to as "broker non-votes." Thus, if you
do not give your broker or nominee specific instructions, your shares may not be
voted on those matters and will not be counted in determining the number of
shares necessary for approval. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum. Accordingly,
a broker non-vote will have the effect of a negative vote.
CAN I DISSENT OR EXERCISE RIGHTS OF APPRAISAL?
Under Nevada law, holders of our voting stock are not entitled to dissent
from any of the proposals to be presented at the Annual Meeting or to demand
appraisal of their shares as a result of the approval of any of the proposals.
WHO PAYS FOR THIS PROXY SOLICITATION?
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional solicitation materials furnished to the stockholders. Copies
of solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward the solicitation material to such beneficial owners.
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
GENERAL
A board of five directors is to be elected at the Annual Meeting. It is
expected that a majority of the common stock will be voted in favor of the five
nominees named below, all of
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whom are current directors. In the event Proposal 3, which includes the creation
of a classified Board of Directors, is adopted at the Annual Meeting, the
directors will be divided into three classes and, unless otherwise noted on the
proxy, the shares represented by the enclosed proxy will be voted for the
election as directors of the five nominees named below to serve for the terms
indicated below, or until their successors have been duly elected and qualified.
If Proposal 3 is not approved by the stockholders at the Annual Meeting, then
unless otherwise noted on the proxy, the shares represented by the enclosed
proxy will be voted for the election as directors of the five nominees named
below to serve until the 2005 Annual Meeting or until their successors have been
duly elected and qualified. In the event that any nominee is unable or declines
to serve as a director, an alternate nominee will be designated by the present
Board of Directors to fill the vacancy. We are not aware of any nominee who will
be unable or will decline to serve as a director.
VOTE REQUIRED
If a quorum is present and voting, the five nominees receiving the highest
number of votes will be elected to the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF EACH OF THE DIRECTOR
NOMINEES.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
NAME OF NOMINEE CLASS TERM AGE TITLE
-------------------- ----- ---- --- -----------------------------------------
Angelo Tullo I 2007 47 Chairman of the Board of Directors, Chief
Executive Officer and President
DeVal Johnson I 2007 37 Director, Vice President and Secretary
Peter Bergmann II 2006 54 Director
Daniel L. Coury, Sr. II 2006 49 Director
Gregory B. Crane III 2005 39 Director
ANGELO TULLO. Mr. Tullo has served as the Chairman of the Board of YP.Net
since February 2000. Mr. Tullo was hired as Chief Executive Officer and
President on September 10, 2000. Mr. Tullo is the president of Sunbelt Financial
Solutions, Inc., an investment banking and consulting firm in Scottsdale,
Arizona. From January 1997 to December 1999, Mr. Tullo was President and a
director of American Business Funding Corp., which was in the business of
accounts receivable factoring for small and medium sized businesses. For over
twenty years, Mr. Tullo has been active as a business consultant. Mr. Tullo has
actively worked in the areas of commercial financing and factoring for the past
ten years. He has owned and operated factoring companies, leasing companies,
consulting companies, wholesale companies, professional employment
organizations, insurance agencies, heating and air conditioning contractors,
retail oil companies, real estate companies and restaurants. He is a former
member of the CEO Club in New York, and currently is a member and honorary Mesa
Chairman of the Presidential Business Roundtable Committee and the Turnaround
Management Association.
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Mr. Tullo has been involved with a number of corporate turnaround
situations in which the companies he was associated with faced difficult
financial circumstances. He has been successful with most of these difficult
situations. However, in February 2000, after Mr. Tullo had departed, American
Business Funding Corp. filed for protection under Chapter 11 of the Bankruptcy
Code in the Federal District Court of Arizona. Mr. Tullo had previously been a
director, officer and shareholder of American Business Funding Corp. prior to
the time of its bankruptcy filing. American Business Funding has successfully
emerged from Chapter 11 bankruptcy with an approved plan that fully repays all
creditors.
DEVAL JOHNSON. Mr. Johnson has served as a director since October 1999.
Currently, Mr. Johnson serves as Corporate Secretary and Vice President. Prior
to the acquisition of Telco Billing, Inc., our wholly owned subsidiary, Mr.
Johnson was part of the team that created what is now the YP.Com concept. When
Telco Billing was acquired in June 1999, Mr. Johnson left to create Simple.Net,
an Internet service provider. In October 1999, Mr. Johnson was asked to return
to serve as a Director of the Company, whereupon he was instrumental in
refocusing the Company on it's newly acquired business, which resulted in the
corporate name change to YP.Net, Inc. Since that time, Mr. Johnson has been the
art director responsible for the design of the in-house sales presentations,
creation of the corporate logo(s) and image for YP.Net and directs the team that
creates and manages our web presence. In 2001, Mr. Johnson consolidated his
other business interests, GraffitiWorx, a graphic design firm and SiteForce, a
web site design firm, into Advanced Internet Marketing, Inc. to provide design
and marketing services to a variety of companies. Mr. Johnson continues to
offer these services to the Company. Prior to 1997, Mr. Johnson created the
PrintPro franchise concept for Design Concept Printing & Signs, Inc. and headed
up their graphic design department. Mr. Johnson is actively involved with web
site promotion, interactive design, Internet advertising and public relations.
Mr. Johnson continues his business Simple.Net where he serves as an officer and
director.
GREGORY B. CRANE. Mr. Crane has been a director of YP.Net since February
2000. He currently serves as Chief Operating Officer of Telco Billing, our
wholly owned subsidiary and the entity out of which we conduct most of our
operations. Mr. Crane served as the Company's Director of Operations from
February 2000 to September 2000. Mr. Crane has served as President of
Advertising Management and Consulting Services, Inc. ("AMCS") since January 29,
2001. AMCS provides marketing and administrative services, as well as personnel,
to the Company. From mid-1997 to December 2002, Mr. Crane served as a marketing
consultant to Business Executive Services, Inc. ("BESI"), a direct mail
management and processing company. From September 1998 to June 1999, Mr. Crane
was the General Manager of Telco Billing. Mr. Crane has owned and operated
several businesses, including residential and commercial builders, multi-state
mail order, and document-preparation companies, and also was the creator of the
Yellow-Page.Net concept. Mr. Crane is a former member of the Young
Entrepreneur's Organization.
In connection with a former business of Mr. Crane, which provided homestead
declaration document preparation and filing services, Mr. Crane and that
business were subject to injunctive actions brought by the state of Florida as a
result of complaints relating to the presentation of solicitation mailers. Mr.
Crane voluntarily entered into a consent order with the State of Florida that
required him to supply a copy of the mailer to be printed within 14 days prior
to its mailing, as well as the payment of civil penalties, restitution, and
attorneys' fees if he were to violate the order in the future. The order was
violated due to an error in type size made by a printing company hired by Mr.
Crane's business. The printing company has admitted its responsibility for this
error. Despite the printing company's admission, Mr. Crane was subject to
5
a judgment, dated February 1998, in the amount of approximately $1.4 million,
plus accrued interest. However, because of the printing company's admission, the
State of Florida took no action on this matter, which was finally vacated in
June 2003.
Because Mr. Crane had been an employee of Telco Billing, Inc. prior to its
acquisition by the Company, Mr. Crane was named in an action filed by the United
States Federal Trade Commission ("FTC") against the Company in June 2000
concerning actions taken by prior management of the Company. None of the
Company's current management was either present for or involved with the actions
that were the basis for the FTC's complaint. The actions of the prior
management involved the presentation of direct mail solicitations. Mr. Crane
has been included in the Stipulated Preliminary Order entered into by the FTC
and the Company and approved by the FTC. The Stipulated Final Judgment and Order
for Permanent Injunction and Other Equitable Relief by and between the FTC, Mr.
Crane, Telco Billing, the Company and others (the "Order") places certain
restrictions on the way mail solicitations will appear. The U.S. District Court
has approved the Order and the matter is closed with no findings of wrong doing
on the part of Mr. Crane, the Company, or its officers and directors.
DANIEL L. COURY, SR. Mr. Coury has served as a director of YP.Net since
February 2000. For the last twelve years, Mr. Coury has served as President and
Chairman of Mesa Cold Storage, Ltd., which owns and operates the largest cold
storage facilities in Arizona. Between 1990 and the present, Mr. Coury has
developed an additional 4.6 million cubic feet of modern, state of the art cold
storage facilities in Mesa and Tolleson, Arizona. Before Mr. Coury purchased
Mesa Cold Storage, he had experience in international trade, real estate
development, real estate exchanges and serving as a consultant to the family
businesses, which include five General Motors dealerships, numerous commercial
and residential developments and mortuary services.
PETER BERGMANN. Mr. Bergmann has served as a director of the Company since
May 2002. Since January 1999, Mr. Bergmann has served as the President of
Perfect Timing Media, Inc., a television development and production company,
which he founded. From 1994 to 1999, Mr. Bergmann was a member of the faculty at
Fairleigh Dickinson University, where he inaugurated the electronic Filmmaking
and Digital Video Design program, which is a distinctive program in video and
computer-generated graphics technologies offering students an opportunity to
study commerce and art. In 1988, Mr. Bergmann joined Major Arts, Inc., a
division of Paramount Communications, Inc., as the head of its television
division where he was responsible for developing projects for television
production. In 1987, Mr. Bergmann served as the President of Odyssey
Entertainment, Inc. where he engineered the purchase of Coast Productions, Inc.,
which subsequently became Odyssey Filmmakers, Inc. From 1984 through 1987, Mr.
Bergmann served as President of The Film Company, where he had directorial and
production responsibilities for theatrical releases and projects for television.
During the 14 years prior to 1984, Mr. Bergmann was employed in various
capacities by the American Broadcasting Company. These positions included line
producer, division head, and assistant to the President, Executive Vice
President and Special Assistant to the Chairman of the Board. Mr. Bergmann
received his PhD from New York University.
6
HOW ARE DIRECTORS COMPENSATED?
The directors receive $2,000 per meeting or per quarter, whichever is
greater, for their service on the Board and may receive $250 per hour for
services related to any Board Committees, standing, temporary or otherwise, on
which they serve. Upon appointment to the Board, Mr. Tullo was awarded 100,000
shares of our common stock. All other directors were awarded 50,000 shares upon
their appointment to the Board. The shares awarded were earned monthly for
director services performed.
The Company has an arrangement with one of its outside directors, Mr.
Coury, whereby the Company has agreed to pay $10,000 per month for Board and
Compensation committee services to DLC Consulting, Inc., an entity owned by Mr.
Coury, instead of paying Mr. Coury directly.
In compliance with the new rules implemented by the Sarbanes-Oxley Act of
2002, the Company has established a hotline in order to receive anonymous calls
and complaints concerning accounting, internal accounting controls, or auditing
matters. Mr. Bergmann receives an additional monthly fee of $3,000 for
monitoring this hotline.
In fiscal 2003, our directors received the following compensation for their
service as directors:
DIRECTOR CASH
-------------------- --------
Angelo Tullo $ 8,000
DeVal Johnson $ 8,000
Gregory B. Crane $ 8,000
Daniel L. Coury, Sr. $128,000
Peter Bergmann $ 21,000
HOW OFTEN DID THE BOARD MEET DURING FISCAL 2003?
The Board of Directors met 10 times during fiscal 2003, either
telephonically or in person. Attendance by directors at the meetings of the
Board and Board committees on which they served was 100%.
WHAT COMMITTEES HAS THE BOARD ESTABLISHED?
The Board of Directors has one standing committee, a Compensation
Committee. Messrs. Coury and Bergmann, both outside directors, are currently the
only members of the Compensation Committee. Mr. Coury serves as the committee's
chairman. Our Compensation Committee, which met four times during Fiscal 2003,
reviews the performance of management and the compensation of our executive
officers, as well as executive bonus plan allocations. The Compensation
Committee also administers our 2003 Stock Plan and approves stock grants to
officers and employees under that plan. We currently are in the process of
identifying qualified individuals to serve as additional independent members of
the Compensation Committee.
7
We do not maintain a standing Audit Committee at this time. However, we are
in the process of forming this committee, as well as identifying qualified
individuals to serve on such committee. Additionally, we currently do not have a
financial expert serving on our Board of Directors. However, in an effort to
ensure fiscal responsibility, the Board has hired the services of Jerold M.
Pierce, a former investigator of the Internal Revenue Service, to perform
forensic auditing each fiscal quarter and to assess compliance with applicable
and appropriate accounting and financial controls. Mr. Pierce reports his
findings directly to the full board. Mr. Pierce also meets with our Chief
Financial Officer and other members of financial management and our independent
auditors to review internal accounting controls and accounting, auditing and
financial reporting matters.
We do not maintain a standing nominating committee or other committee
performing similar functions. The function of nominating directors is carried
out by the entire Board of Directors.
EXECUTIVE OFFICERS AND COMPENSATION
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Our management consists of the following personnel, in addition to Angelo
Tullo, our Chief Executive Officer and President and DeVal Johnson, our
Secretary, both of whom are named above as Directors.
NAME AGE POSITION
David J. Iannini 44 Chief Financial Officer
John Raven 39 Chief Technology Officer
DAVID J. IANNINI. Mr. Iannini has served as our Chief Financial Officer
since August 2002. Mr. Iannini was employed as Treasurer and Vice President of
Corporate Development of Viad Corp, a publicly held company with over $1.5
billion in annual sales and over $7 billion in assets, from July 1999 to June
2002. Viad Corp. is a diversified service business with operating companies
involved in the financial services, convention, travel and other businesses. Mr.
Iannini was an investment banker from August 1986 to July 1999, primarily with
Salomon Brothers, Inc. Mr. Iannini received his Masters in Business
Administration, Summa Cum Laude, from the Anderson Graduate School of Management
at U.C.L.A. Prior to his graduate studies, he worked with a Big Five accounting
firm and is a certified public accountant. Mr. Iannini received his Bachelors of
Science degree, Magna Cum Laude, in Accounting from Boston College in 1981.
JOHN RAVEN. Mr. Raven was appointed Chief Technology Officer for YP.Net, Inc. in
September 2003. Mr. Raven has over ten years experience in the technology arena
and 16 years of overall leadership experience working with companies such as
Perot Systems (PER) where he managed 640 staff members and a $170 million annual
IT budget, Read-Rite Corp (RDRT) where he oversaw a $30 million dollars IT
budget with operations throughout Asia, as well as Cap Gemini Ernst & Young
(CAPMF) where he managed accounts for this division of a Big 5
8
auditing firm maintaining $4.8 million in revenue. Mr. Raven also served as
Director of Information Technology at Viacom's ENG Network division. Most
recently, as a member of senior account management for Perot Systems he directed
the development of information security strategy for its client Catholic
Healthcare West. Mr. Raven has experience in software engineering, data and
process architecture, systems development, and database management systems. At
NASA's Jet Propulsion Laboratory, Mr. Raven was a team member and information
systems engineer for the historic 1997 mission to Mars conducted with the
Pathfinder space vehicle and the Sojourner surface rover. Mr. Raven received his
Bachelors of Science in Computer Science from the California Institute of
Technology in 1991. His certifications include; Cisco Internetwork Engineer,
Project Management from the Project Management Institute, Certified Project
Manager from Perot Management Methodology Institute, Microsoft Certified System
Engineer, Certified Novel Engineer and others.
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth the total compensation for the fiscal years
ended September 30, 2003, 2002 and 2001 paid to or accrued for our chief
executive officer and our four other executive officers who provided services to
us at September 30, 2003, excluding executive officers paid less than $100,000
annually. These executive officers are collectively referred to as the "Named
Executive Officers."
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
LONG TERM
COMPENSATION
------------
NAME AND
-------- OTHER ANNUAL RESTRICTED STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($)(6) BONUS ($) COMPENSATION ($)(7) AWARDS ($)(8) COMPENSATION ($)
-------------------------- ---- ------------- ----------- ------------------- ----------------- ----------------
Angelo Tullo (1) 2003 612,000 300,000 100,844 303,750 410,054(9)
Chairman, Chief Executive 2002 282,000 208,000 - - -
Officer, President 2001 218,000 48,000 - - -
David J. Iannini (2) 2003 199,808 43,750 - 607,500 -
Chief Financial Officer 2002 11,538 - - - -
2001 - - - - -
DeVal Johnson (3) 2003 269,750 95,000 - 405,000 -
Director, Secretary 2002 125,800 20,000 - - -
and Subsidiary Officer 2001 8,000 5,618 - - -
Gregory Crane (4) 2003 442,000 110,000 - 405,000 -
Director and Subsidiary 2002 249,000 35,000 - - -
Officer 2001 122,000 - - - -
John Raven (5) 2003 8,654 - - 150,000 -
Chief Technology Officer 2002 - - - - -
of Subsidiary 2001 - - - - -
_____________
9
(1) Mr. Tullo is not directly compensated by the Company. The amounts shown
herein as compensation to Mr. Tullo are the total amounts paid by the
Company to Sunbelt Financial Concepts, Inc. ("Sunbelt") for services
provided to the Company by Mr. Tullo and his staff, pursuant to an
Executive Consulting Agreement dated September 20, 2002. This agreement
replaced a prior agreement between the Company and Sunbelt. These amounts
may not reflect Mr. Tullo's actual compensation from Sunbelt, which may be
greater or less than the amount shown. The amounts set forth under the
Bonus column for Mr. Tullo include 200,000 shares of YP.Net stock valued by
the Company at $.24 per share in fiscal 2001 and 4,000,000 shares valued by
the Company at $.075 per share in fiscal 2003 issued to Sunbelt.
(2) The amounts shown herein as compensation to Mr. Iannini are the total
amounts paid by the Company either to Mr. Iannini directly or to Mar &
Associates, Inc., an entity owned by Mr. Iannini, ("Mar") for services
provided to the Company pursuant to an Executive Consulting Agreement dated
May 1, 2003. These amounts may not reflect Mr. Iannini's actual
compensation from Mar, which may be greater or less than what is shown. The
amounts set forth under the Bonus column include 50,000 shares of Common
Stock valued by the Company at $.075per share and 250,000 shares of Common
Stock valued by the Company at $.10 per share issued to Mr. Iannini in
fiscal 2003. Mr. Iannini joined the Company in August 2002.
(3) Mr. Johnson is not compensated directly by the Company. The amounts shown
herein as compensation are the total amounts paid by the Company to
Advanced Internet Marketing, Inc. ("AIM"), for services provided to the
Company by Mr. Johnson and his staff, pursuant to an Executive Consulting
Agreement dated September 20, 2002. These amounts may not reflect Mr.
Johnson's actual compensation from AIM, which may be greater or less than
what is shown. The amounts set forth under the Bonus column include
1,000,000 shares of YP.Net stock valued by the Company at $.075 per share
issued to Mr. Johnson in fiscal 2003.
(4) Mr. Crane is not compensated directly by the Company. The amounts shown
herein as compensation to Mr. Crane are the total amounts paid by the
Company to Advertising Management and Consulting Services, Inc. ("AMCS")
for services provided to the Company by Mr. Crane and his staff pursuant to
an Executive Consulting Agreement dated September 20, 2002. These amounts
may not reflect Mr. Crane's actual compensation from AMCS, which may be
greater or less than what is shown. Mr. Crane is the President of AMCS,
which provides marketing and administrative services and personnel to the
Company. The amounts set forth under the Bonus column include 1,000,000
shares of YP.Net stock valued by the Company at $.075 per share issued to
Mr. Crane in fiscal 2003.
(5) Mr. Raven joined the Company in August, 2003. His annual salary is
$150,000.
(6) The amounts set forth under the Salary column include base salary paid to
the consulting entities with which the Named Executive Officers are
associated, unless otherwise specified. These amounts also include payments
made under the Flex Compensation program pursuant to their Executive
Consulting Agreements. The Named Executive
10
Officers' relationships with these consulting firms and the descriptions of
the Executive Consulting Agreements are more fully discussed under "Certain
Relationships and Related Transactions - Agreements with Executive
Officers."
(7) The amounts set forth under this column include reimbursed taxes on bonus
and other compensation paid pursuant to certain Executive Consulting
Agreements between the Company and the Named Executive Officer. Those
Executive Consulting Agreements are more fully described at "Certain
Relationships and Related Transactions - Agreements with Executive
Officers."
(8) The amounts under the Restricted Stock Awards column include the dollar
value of shares of restricted stock issued to the Named Executive Officers
under our 2003 Stock Plan.
(9) This amount reflects the reimbursement of legal fees in connection with a
legal matter involving Mr. Tullo and a former business with which he was
involved. This matter has been settled and all claims against Mr. Tullo in
connection with this matter have been dismissed.
COMPENSATION PURSUANT TO STOCK OPTIONS.
No options were granted to any of the Named Executive Officers during the
fiscal year ended September 30, 2003.
During the fiscal year ended September 30, 2003, there were no outstanding
stock options. Also during such fiscal year, no long-term incentive plans or
pension plans were in effect with respect to any of the Company's officers,
directors or employees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH EXECUTIVE OFFICERS
We have entered into the following Executive Consulting Agreements with
entities controlled or owned by Messrs. Tullo, Crane, Johnson and Iannini. Each
of these agreements is dated as of September 20, 2002 and has a five year term,
with the exception of the agreement entered into with Mar & Associates, Inc.,
the entity controlled by Mr. Iannini, which was dated as of May 1, 2003 and has
a term of 55 months.
These agreements are not personal service contracts to the respective
executive officers. The amounts paid to these entities support multiple
personnel employed by the consulting entities, as well as costs associated with
the provision of the specified services. The individuals deployed by the
consulting entities include skilled support staff with many years of experience
working as a team, both within their own entities, as well as between entities.
The Named Executive Officers and their respective consulting entities provide a
wealth of experience in turnaround and restructuring situations, as well as
solid track records of operating successful companies. Our Board of Directors
believes that these arrangements are beneficial to the Company and in the best
interests of our stockholders given the breadth of support and depth of
11
knowledge and expertise that each consulting entity brings to bear through its
respective support teams.
Sunbelt Financial Concepts, Inc.
Mr. Tullo, our Chief Executive Officer, is the President of Sunbelt
Financial Concepts, Inc. ("Sunbelt"). The Sunbelt agreement provides that Mr.
Tullo, through Sunbelt, will provide us with the services of Chief Executive
Officer, Chairman and President among other administrative services and
personnel. Pursuant to the Sunbelt agreement, Sunbelt originally received
$32,000 per month during the first year of the agreement with a 10% annual
increase in each succeeding year, as well as Board of Director fees, an annual
bonus, and fees and reimbursements for certain ancillary items. The Sunbelt
agreement also awarded Sunbelt 4,000,000 shares of the Company's common stock,
grossed-up for taxes, subject to achieving certain performance goals for the
Company in fiscal 2003, which were achieved.
As part of the Sunbelt agreement, a Flex Compensation program was
instituted. This program provides Sunbelt with the ability to be paid up to
$220,000 annually (increased by 10% on each anniversary date of the agreement)
as additional compensation, subject to sufficient cash on hand at the Company.
The taxes on the Flex Compensation, bonus and stock that is not issued under our
2003 Stock Plan are paid by the Company. In addition, the agreement contains a
Due on Sale clause whereby, if there is a change of control of the Company, as
defined, Sunbelt will receive the greater of 30% of the amounts due under the
agreement or 12 months' worth of fees.
In fiscal 2003, Sunbelt was paid approximately $384,000 in fees, $220,000
in Flex compensation under the Flex Compensation program, $8,000 in directors
fees and $300,000 in common stock for services rendered by it through Mr. Tullo
and his support staff. The Company also reimbursed Sunbelt $100,844 for income
taxes pursuant to the agreement.
Sunbelt also was compensated approximately $410,054 in fiscal 2003 as
reimbursed legal fees in connection with certain legal matters involving Mr.
Tullo, as more fully described in our Annual Report accompanying this Proxy
Statement.
We have has also entered into an agreement with Sunbelt, dated January
2002, wherein we lease two vehicles in the Company's name for the benefit of
Sunbelt. Sunbelt pays the lease payments on the vehicles, which are $1,079 and
$1,111 respectively. This agreement remains in effect until the conclusion of
the respective leases, which expire in January 2005 and February 2005
respectively. This arrangement was structured in this manner in an effort to
assist the Company in establishing credit for future equipment purchases.
Advertising Management & Consulting Services, Inc.
Mr. Crane, our Executive Vice President of Marketing, Chief Operating
Officer and a director, is the President of Advertising Management & Consulting
Services, Inc. ("AMCS"). The AMCS agreement provides that Mr. Crane, through
AMCS, will provide the Company with the services of director and Executive Vice
President of Marketing, among other administrative services and personnel.
Under the AMCS agreement, we outsource the design and testing of our
12
many direct mail pieces to AMCS. As part of the AMCS agreement, AMCS originally
received $32,000 per month with a 10% annual increase in each succeeding year,
as well as Board of Director fees, an annual bonus, and fees and reimbursements
for certain ancillary items. In addition, the AMCS agreement also awarded AMCS
with 1,000,000 shares of the Company's common stock, grossed-up for taxes,
subject to achieving certain performance goals for the Company in fiscal 2003,
which were achieved.
As part of the agreement with AMCS, a Flex Compensation program was
instituted. This program provides AMCS with the ability to be paid up to
$50,000 per year (increased by 10% on each anniversary date of the agreement) as
additional compensation, subject to sufficient cash on hand at the Company. The
taxes on the Flex Compensation, bonus and stock that is not issued under our
2003 Stock Plan are paid by the Company. In addition, the agreement contains a
Due on Sale clause whereby, if there is a change of control of the Company, as
defined, AMCS will receive the greater of 30% of the amounts due under the
agreement or 12 months' worth of fees.
In fiscal 2003, AMCS was paid approximately $384,000 in fees, $35,000 as an
annual bonus, $50,000 in Flex compensation under the Flex Compensation program,
$8,000 in directors fees and $75,000 in common stock for services rendered by it
through Mr. Crane and his support staff. AMCS was also granted approximately
$405,000 in restricted stock in fiscal 2003 as additional compensation.
Advanced Internet Marketing, Inc.
Mr. Johnson, our Executive Vice President of Corporate Image, is the
President of Advanced Internet Marketing, Inc. ("AIM"). The AIM agreement
provides that Mr. Johnson, through AIM, will provide the Company with the
services of director, Corporate Secretary and Executive Vice President of
Corporate Image, among other administrative and marketing services and
personnel. In addition to the services discussed above, under the AIM
agreement, we also outsource the design and some of the marketing of our website
to AIM. All of these services are included under the agreement and for the fees
described below. As part of the AIM agreement, AIM originally received $18,000
per month with a 10% annual increase in each succeeding year, as well as Board
of Director fees, an annual bonus, and fees and reimbursements for certain
ancillary items. In addition, the agreement also awarded AIM with 1,000,000
shares of Company common stock, grossed-up for taxes, subject to achieving
certain performance goals for the Company in fiscal 2003, which were achieved.
As part of the agreement, a Flex Compensation program was instituted. This
program provides AIM with the ability to be paid up to $30,000 annually
(increased by 10% on each anniversary date of the agreement) as additional
compensation, subject to sufficient cash on hand at the Company. The taxes on
the Flex Compensation, bonus and stock that is not issued under our 2003 Stock
Plan are paid by the Company. In addition, the agreement contains a Due on Sale
clause whereby, if there is a change of control of the Company, as defined, AIM
will receive the greater of 30% of the amounts due under the Agreement or 12
months' worth of fees.
In fiscal 2003, AIM was paid approximately $274,750 in fees, $35,000 as an
annual bonus, $30,000 in Flex compensation under the Flex Compensation program,
$8,000 in directors
13
fees and $75,000 in common stock for services rendered by it through Mr. Johnson
and his support staff. AIM was also granted approximately $405,000 in restricted
stock in fiscal 2003 as additional compensation.
Mar & Associates, Inc.
Mr. Iannini, our Chief Financial Officer, is the President of Mar &
Associates, Inc. ("MAR"). The MAR Agreement provides that Mr. Iannini, through
MAR, will provide the Company with the services of Chief Financial Officer,
among other administrative services. As part of the MAR Agreement, MAR
originally received $17,500 per month with a 10% annual increase in each
succeeding year, as well as fees and reimbursements for certain ancillary items.
In addition, the agreement also awarded MAR with 250,000 shares of Company
common stock, grossed-up for taxes, subject to achieving certain performance
goals for the Company by January 1, 2004, which were achieved.
As part of the agreement, a Flex Compensation program was instituted. This
program provides MAR with the ability to be paid up to $15,000 annually
(increased by 10% on each anniversary date of the agreement) as additional
compensation, subject to sufficient cash on hand at the Company. The taxes on
the Flex Compensation, bonus and stock that is not issued under our 2003 Stock
Plan are paid by the Company. In addition, the agreement contains a Due on Sale
clause whereby, if there is a change of control of the Company, as defined, then
MAR will receive the greater of 30% of the amounts due under the agreement or 12
months worth of fees.
The agreement also awards bonuses of $15,000 to MAR relating to performance
in fiscal 2003, $21,000 relating to performance for fiscal 2004, and 10% of
annual salary for each fiscal year thereafter for the term of the agreement.
In fiscal 2003, MAR was paid approximately $199,808 in fees, $15,000 in
annual bonus, $15,000 in Flex compensation under the Flex Compensation program
and $28,750 in common stock for services rendered by Mr. Iannini. MAR was also
granted approximately $607,500 in restricted stock in fiscal 2003 as additional
compensation.
OTHER RELATED TRANSACTIONS
Revolving Loan Agreements with Mathew and Markson Ltd. and Morris & Miller, Ltd.
In December 2003, we entered into an agreement with Mathew and Markson,
Ltd. and Morris & Miller, Ltd. (the "M&Ms"), both Antiguan corporations and,
currently, our two largest stockholders, to terminate the revolving loan
agreement previously provided to them in connection with our original
acquisition from them of Telco Billing.
Messrs. Crane and Johnson were employees of and primarily involved in the
start-up of Telco Billing. Mr. Crane negotiated the acquisition of Telco Billing
by the Company on behalf of the M&Ms and continues to serve as a liaison for the
Company to the M&Ms.
As part of the original acquisition of Telco Billing from the M&Ms, we
provided them with the right to "put" back to us, under certain circumstances,
the shares of Company common
14
stock that they received in exchange for the shares of Telco Billing. We
subsequently entered into a new arrangement with the M&Ms, whereby their "put"
rights were terminated in exchange for the establishment of the revolving lines
of credit. Under these lines of credit, we agreed to lend up to $10,000,000 to
each of the M&Ms, collateralized by the Company stock held by the M&Ms and
subject to certain limitations. All advances made under these lines of credit
carried an interest rate at least 0.25 points higher than the Company's average
cost of borrowing but in no event lower than eight percent. No more than $1
million could be advanced at any point in time and no advances could be made
unless, after such advance, the Company had at least 30 days operating cash
reserves or if the Company was in an uncured default with any of its lenders. At
September 30, 2003, the Company had advanced an aggregate $2,126,204 to the M&Ms
under this agreement. The M&Ms have been making interest payments on the
advances but, as allowed under the agreement, have not made any principal
repayments.
Under our new agreement with the M&Ms, dated December 22, 2003 and
memorialized in a Third Amendment to the original Stock Purchase Agreement, the
revolving lines of credit are terminated effective April 9, 2004, upon the
payment of the following final specific advances to each of the M&Ms:
Morris & Miller, Ltd.
$275,000 on January 30, 2004
$300,000 on February 27, 2004
$500,000 on March 31, 2004
Sufficient funds to pay 3 years' interest on April 9, 2004
Mathew and Markson, Ltd.
$50,000 on January 30, 2004
$100,000 on February 27, 2004
$75,000 on March 31, 2004
Sufficient funds to pay 3 years' interest on April 9, 2004
Within ten days after April 9, 2004, the M&Ms will prepay all of the
interest on their loans for the next 36 months. We will continue to retain
pledged stock as collateral for the repayment of all such loans, which mature in
December 2006.
As part of this new agreement, we have also agreed to pay a quarterly
dividend of not less than $.01 per share to all holders of our Common Stock
beginning April 30, 2004 for the period ended March 31, 2004.
Sale of URL and Lease Arrangements
In connection with the original acquisition of our wholly owned subsidiary,
Telco Billing, from Morris & Miller, Ltd. and Mathew and Markson Ltd., both
Antiguan corporations (the "M&Ms") and, currently, our largest stockholders, the
Company agreed to pay Mathew and Markson $5,000,000 as a discounted accelerated
royalty payment for a 20-year license of the URL "Yellow-Page.Net," which
triggered the sale of this URL. The consideration was rendered
15
under the terms of an Exclusive Licensing Agreement dated September 21, 1998,
between Telco Billing and Mathew and Markson. The payment was originally to be
paid in full upon the acquisition of Telco Billing. However, the Company was
unable to pay the entire consideration in cash. As a result, the Company instead
negotiated to pay the $5,000,000 due in cash at closing with a $3,000,000 down
payment and also executed a $2,000,000 promissory note (the "Note") to Mathew
and Markson, which was due on August 15, 1999. In addition, as a result of our
failure to pay the entire $5,000,000 in cash at the original closing, we agreed
to a $2,000,000 extension fee.
On August 15, 1999, we defaulted on the payment of the Note. To extend this
payment obligation to November 15, 1999, we agreed to provide, for the benefit
of Mathew and Markson, $250,000 in tenant improvements for approximately
one-half of our Mesa facility. The premises were leased to Mathew and Markson
for $1.00 per year throughout the term of the five-year lease. The annual fair
rental value of the lease premises is $4,500 per month. Business Executive
Services, Inc. purchased this lease from Mathew and Markson for a one-time
payment of $75,000.
At the due date of the extension (November 15, 1999), we still had not paid
the Note. Therefore, on November 15, 1999, we further extended the payment of
the Note to January 15, 2000 by paying an extension fee of $200,000. On January
15, 2000, we again defaulted on the extension and the Note was renegotiated to a
demand note with monthly installments of $100,000 per month. Under the terms of
the renegotiated Note, the payments may have been suspended if we had did not
have certain cash reserves or were otherwise in default under other obligations.
The renegotiated Note was secured by 2,000,000 shares of our common stock held
in escrow, to be returned for cancellation upon payment of the Note. The Note
has been paid in full but the collateral shares are still held by Mathew and
Markson to secure payment of the penalty fee discussed below.
In July 2001, we were informed by Mathew and Markson that an additional
$2,000,000 penalty fee was due on the original acquisition agreement as a result
of the Company's failure to pay the entire $5,000,000 due in cash at the
original closing. On September 25, 2001, in settlement thereof, we agreed to pay
Mathew and Markson $550,000 and issued to Mathew and Markson 4,000,000 shares of
our common stock valued at $0.09. The $550,000 is to be paid over a 36-month
period at an annual interest rate of 10.5%. The balance as of September 30, 2002
was $115,868 due and payable September 25, 2004.
Simple.Net
We previously used Dial-Up Services, Inc., d/b/a Simple.Net, Inc., an
Internet service provider beneficially owned by DeVal Johnson, our Executive
Vice President of Corporate Image and a director, to provide Internet dial up
services and other services to our customers. These services included customer
service support for Simple.Net's customers and technology support and billing
assistance. At the time our agreement with Simple.Net was entered into, this was
beneficial to us because we did not have sufficient dial-up customers to avoid a
minimum fee to the backbone providers, which are companies that own the cable
and copper wire cables necessary to provide the service. As our customer base
has grown, we are now able to
16
economically enter into our own wholesale contract and in fact have done so with
GlobalPOPs, Inc., an unrelated third party.
On December 29, 2003, we entered into a separation agreement with
Simple.Net, which becomes effective January 31, 2004. Under this agreement,
Simple.Net will no longer provide any services to us. Although the Separation
Agreement provides for a 30-day extension until March 2, 2004, neither
Simple.Net nor we believe that this time period will be needed.
RELATED PARTY TRANSACTION POLICY.
Our general policy requires adherence to Nevada corporate law regarding
transactions between the Company and a director, officer or affiliate of the
Company. Transactions in which such persons have a financial interest are not
void or voidable if the interest is disclosed and approved by disinterested
directors or stockholders or if the transaction is otherwise fair to the
Company. It is the policy of the Company that transactions with related parties
are conducted on terms no less favorable to the Company than if they were
conducted with unaffiliated third parties. During the fiscal year ended
September 30, 2003, there have been no related party transactions except as
shown above.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of February 1, 2004, with respect to (i) each
person known to the Company to be the beneficial owner of more than 5% of the
Company's common stock; (ii) each Named Executive Officer; (iii) each director
of the Company; and (iv) all Named Executive Officers and directors of the
Company as a group. The information as to beneficial ownership was furnished to
us by or on behalf of the persons named. Unless otherwise indicated, the
business address of each person listed is 4840 East Jasmine Street, Suite 105,
Mesa, Arizona 85205.
Shares Percentage of
Name Beneficially Owned Shares Outstanding (1)
--------------------------------------- ------------------ ----------------------
Angelo Tullo (2) 4,325,000 9%
Gregory B. Crane (3) 1,277,500 2.7%
DeVal Johnson (4) 1,329,000 2.8%
David J. Iannini (5) 600,000 1.2%
John Raven 100,000 *
Daniel L. Coury, Sr. 200,000 *
Peter Bergmann 201,000 *
Mathew and Markson Ltd. (6) (7) 10,575,062 22.2%
Morris & Miller Ltd. (6) 10,350,000 21.7%
Sunbelt Financial Concepts, Inc. (8)(9) 4,325,000 9%
All executive officers and 7,982,500 16.7%
directors as a group
(7 persons).
* Represents less than one percent (1%) of our issued and outstanding common
stock.
________________
17
(1) Based on approximately 47,710,302 shares outstanding as of February 1,
2004. This amount includes 2,000,000 shares issued and held as collateral
for obligations of the Company under two promissory notes. Upon timely
payment of the notes, the shares will be returned to the Company for
cancellation.
(2) Of the number shown, 3,875,000 shares are owned by Sunbelt Financial
Concepts, Inc., which are also shown separately in this table. While Mr.
Tullo is the President of Sunbelt, he has no ownership interest in Sunbelt.
Mr. Tullo does, however, have dispositive power over the shares of Common
Stock owned by Sunbelt. Mr. Tullo disclaims beneficial ownership of the
shares owned by Sunbelt except to the extent of any proportionate interest
therein.
(3) Of the number shown, 1,000,000 shares are owned by Advertising Management
and Consulting Services, Inc. ("AMCS"). While Mr. Crane is the President of
AMCS, he has no ownership interest in AMCS. As President of AMCS, however,
he shares dispositive power over the stock owned by AMCS. Mr. Crane
disclaims beneficial ownership of the shares owned by AMCS except to the
extent of any proportionate interest therein.
(4) Of the number shown, 1,004,000 shares are owned by Advanced Internet
Marketing, Inc. ("AIM") Mr. Johnson is President of AIM and his minor
children are the beneficiaries of the trust that owns AIM. Mr. Johnson
disclaims beneficial ownership of the shares owned by AIM except to the
extent of any proportionate interest therein.
(5) Of the number shown, 250,000 shares are owned by Mar & Associates ("Mar").
(6) Address is Woods Centre, Friar's Road, P.O. Box 1407, St. John's, Antigua,
West Indies.
(7) The number of shares held by Mathew and Markson, Ltd. includes 2,000,000
shares issued as collateral for a debt owed by the Company. Mathew and
Markson has voting control of these shares. These shares will be returned
to the Company and cancelled upon timely payment of the debt. Ilse Cooper,
is the control person for Mathew and Markson.
(8) Of the number shown, 3,875,000 are owned by Sunbelt and 450,000 shares are
owned directly by Mr. Tullo. Of the 450,000 shares owned directly by Mr.
Tullo, 150,000 shares were granted as restricted stock under our 2003 Stock
Plan. Hickory Management is the owner of Sunbelt and J.C. McDaniel, Esq. is
the control person.
(9) Address is 4710 E. Falcon Drive, #204A, Mesa, Arizona, 85215.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers, directors, and persons who own more than ten percent of
a registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors, and greater than ten percent stockholders are
required by SEC regulation to furnish us with copies of all Section 16(a) forms
they file. Based solely on our review of the copies of such forms received by it
during the year ended September 30, 2003, we believe that, during such year our
executive officers, directors and ten percent stockholders complied with all
such filing requirements except that Mr.
18
Bergmann filed a late Form 4 relating to the purchase of 1,000 shares of the
Company's common stock and the receipt of 150,000 shares of restricted stock
pursuant to the 2003 Stock Plan and Mr. Coury filed a late Form 4 relating to
the receipt of 150,000 shares of restricted stock pursuant to the 2003 Stock
Plan. The required filings were eventually filed to reflect these transactions.
AMENDMENT TO THE YP.NET, INC. 2003 STOCK PLAN (PROPOSAL NO. 2)
Proposal 2 seeks stockholder approval of an amendment to the YP.Net, Inc.
2003 Stock Plan (the "Plan") to increase the total number of shares authorized
to be issued under the Plan from 3,000,000 to 5,000,000 shares. The 2,000,000
share increase represents approximately 4% of our approximately 47,710,302 total
outstanding shares as of February 1, 2004.
The Board of Directors believes that the Plan will promote the success and
enhance the value of the Company by linking the personal interest of
participants to those of Company stockholders and by providing participants with
an incentive for outstanding performance.
During the year ended September 30, 2002, our stockholders approved the
2002 Employees, Officers & Directors Stock Option Plan (the "2002 Plan"), which
was intended to replace our 1998 Stock Option Plan (the "1998 Plan"). The 2002
Plan was never implemented, however, and no options, shares or any other
securities were issued or granted under the 2002 Plan. There were 3,000,000
shares of our common stock authorized under the 2002 Plan, which were to come
from our authorized but unissued common stock. On June 30, 2003 and July 21,
2003, respectively, our Board of Directors and a majority of our stockholders
terminated both the 1998 Plan and the 2002 Plan and approved our 2003 Stock
Plan. The 3,000,000 shares of common stock previously allocated to the 2002 Plan
were re-allocated to the 2003 Plan.
In December, 2003, our Board of Directors approved, subject to stockholder
approval, an amendment to the Plan to increase the aggregate number of shares
available thereunder by 2,000,000 shares in order to have an adequate number of
shares available for future grants. As of February 1, 2004, a total of 2,269,000
shares of restricted stock had been issued under the Plan and were no longer
available for grant, and a total of 731,000 shares remained available for
additional grants, prior to giving effect to the proposed increase. The Board of
Directors believes that it is in the Company's best interests to be able to
continue to create equity incentives to assist in attracting, retaining, and
motivating the key executives, service providers and consultants.
From August 2003 through February 1, 2004 the following persons or groups
had received restricted common stock under the Plan, as follows: (i) the Chief
Executive Officer and the other executive officers named in the Executive
Compensation Summary table: 950,000 shares; (ii) all current directors who are
not executive officers as a group: 300,000 shares; and (iv) all employees,
service providers and consultants as a group: 1,019,000 shares. We are unable to
determine the number of restricted shares to be received in the future by all
current executive officers as a group, all current directors who are not also
executive officers as a group, or all employees, service providers or
consultants.
19
The Plan provides for the granting of restricted stock, performance shares,
and performance-based awards to eligible individuals. A summary of the principal
provisions of the Plan is set forth below. The summary is qualified by reference
to the full text of the Plan, which is filed with the Securities and Exchange
Commission as Exhibit 99.1 to the Company's Registration Statement on Form S-8
(File No. 333-107721) on August 7, 2003.
VOTE REQUIRED
The approval of the proposed amendment to the 2003 Stock Plan will require
the affirmative vote of the holders of a majority of the shares represented in
person or by proxy and entitled to vote on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE PLAN.
WHO SHALL HAVE AUTHORITY TO ADMINISTER THE PLAN?
The Compensation Committee or such other committee as appointed by the
Board administers the Plan. The Committee has the exclusive authority to
administer the Plan, including the power to determine eligibility, the types and
sizes of awards, the price and timing of awards, and the acceleration or waiver
of any vesting or restriction, provided that the Committee will not have the
authority to waive any performance restrictions with respect to any
performance-based awards.
WHO IS ELIGIBLE TO RECEIVE AWARDS UNDER THE PLAN?
Persons eligible to participate in the Plan include all employees of, and
non-employee service providers and consultants to, the Company and its
subsidiaries, as determined by the Committee. As of February 1, 2004, there were
approximately 119 eligible participants of the Company and its subsidiaries.
WHAT ARE THE LIMITATIONS ON THE AWARDS AND SHARES AVAILABLE?
An aggregate of 5,000,000 shares of Common Stock will be authorized for
issuance under the Plan, as amended. A maximum of 1,000,000 shares of Common
Stock may be granted in the form of performance-based awards to any one
participant for a performance period.
WHAT TYPES OF AWARDS MAY BE GRANTED UNDER THE PLAN?
The Plan provides for the grant of restricted stock, performance shares, or
performance-based awards. No determination has been made as to the types or
amounts of awards that will be granted to specific individuals under the Plan in
the future. See the Summary Compensation Table on page 9 of this Proxy Statement
for information on prior awards to Named Executive Officers.
20
WHAT IS RESTRICTED STOCK?
Under the restricted stock feature of the Plan, an eligible individual may
be granted a specified number of shares of Common Stock. However, the
recipient's rights to such shares do not vest until certain restrictions lapse
or certain performance goals are attained. If the recipient violates any of the
restrictions during the period specified by the committee or the performance
standards fail to be satisfied, the stock is forfeited back to the Company.
WHAT ARE PERFORMANCE-BASED AWARDS AND PERFORMANCE SHARES?
A performance share is a contingent right to receive a pre-determined
amount if certain performance goals are met. The value of performance units will
depend on the degree to which the specified performance goals are achieved but
are generally based on the value of our Common Stock. Payment of earned
performance units will be made within the time determined by the Committee days
after the end of the measurement period for the performance unit. The Committee
may, in its discretion, pay earned performance shares in cash, or Common Stock,
or a combination of both.
The amount of payments made to a participant will be the value of the
performance share for the level of performance achieved multiplied by the number
of performance shares earned by the participant. Prior to the beginning of each
measurement period for the performance share, participants may elect to defer
the receipt of the performance unit payout on terms acceptable to the Committee.
Grants of performance-based awards under the Plan enable the Committee to
treat restricted stock and performance share awards granted under the Plan as
"performance-based compensation" under Section 162(m) of the Code and preserve
the deductibility of these awards for federal income tax purposes. Because
Section 162(m) of the Code only applies to those employees who are "covered
employees," as defined in Section 162(m) of the Code, only covered employees are
eligible to receive performance-based awards. The term "covered employee"
generally refers to executive officers and other highly compensated employees.
Participants are only entitled to receive payment for a performance-based
award for any given performance period to the extent that pre-established
performance goals set by the Committee for the period are satisfied. These
pre-established performance goals must be based on one or more of the following
performance criteria: pre- or after tax net earnings, sales or revenue,
operating earnings, operating cash flow, return on net assets, return on
stockholders' equity, return on assets, return on capital, stockholder returns,
gross or net profit margin, earnings per share, price per share, and market
share. These performance criteria may be measured in absolute terms or as
compared to any incremental increase or as compared to results of a peer group.
With regard to a particular performance period, the Committee has the discretion
to select the length of the performance period, the type of performance-based
awards to be granted, and the goals that will be used to measure the performance
for the period. In determining the actual size of an individual
performance-based award for a performance period, the Committee may reduce or
eliminate (but not increase) the award. Generally, a participant must be
21
employed on the date the performance-based award is paid to be eligible for a
performance-based award for that period.
WHO HAS THE AUTHORITY TO AMEND OR TERMINATE THE PLAN?
The Committee, subject to approval of the Board, may terminate, amend, or
modify the Plan at any time, provided that stockholder approval must be obtained
for any amendment to the extent necessary and desirable to comply with any
applicable law, regulation or stock exchange rule.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN?
A participant receiving restricted stock, performance shares, or
performance-based awards will not recognize taxable income at the time of grant.
The recipient will, however, recognize ordinary income equal to the fair market
value of the stock at the time the restrictions lapse. The Company is entitled
to a tax deduction equal to the amount of income recognized by the recipient in
the year in which the restrictions lapse. Instead of postponing the income tax
consequences of a restricted stock award, the recipient may elect to include the
fair market value of the Common Stock in income in the year the award is
granted. This election is made under Section 83(b) of the Code. The Section
83(b) election is made by filing a written notice with the Internal Revenue
Service within 30 days of the date of grant and must meet certain technical
requirements.
The tax treatment of the subsequent disposition of restricted stock will
depend upon whether the recipient has made a Section 83(b) election to include
the value of the Common Stock in income when awarded. If the recipient makes a
Section 83(b) election, any disposition thereafter will result in a capital gain
or loss equal to the difference between the selling price of the Common Stock
and the fair market value of the Common Stock on the date of grant. The
character of such capital gain or loss will depend upon the period the
restricted Common Stock is held. If no Section 83(b) election is made, any
disposition thereafter will result in a capital gain or loss equal to the
difference between the selling price of the Common Stock and the fair market
value of the Common Stock on the date the restrictions lapsed.
WHAT HAPPENS IN THE EVENT OF A CHANGE IN CONTROL OF THE COMPANY?
In the event of a Change in Control (as defined in the Plan) of the
Company, unless otherwise provided in an award agreement, the Committee has the
discretion to provide that all awards under the Plan will become fully
exercisable and all restrictions on awards will lapse.
22
EQUITY COMPENSATION PLAN INFORMATION
We maintain the 2003 Stock Plan pursuant to which we may grant equity
awards to eligible persons. The following table gives information about equity
awards under the Company's Plan.
(a) (b) (c)
Number of securities
Number of securities to Weighted-average remaining available for
be issued upon exercise price of future issuance under
exercise of outstanding outstanding options, equity compensation plans
options, warrants and warrants and rights (excluding securities
Plan category rights reflected in column (a))
------------- ----------------------- -------------------- -------------------------
Equity compensation 2,269,000 (2) N/A 731,000
plans approved by
security holders (1)
Equity compensation 0 N/A 0
plans not approved
by security holders
Total 2,269,000 N/A 731,000
1 The 2003 Stock Plan was approved by written consent of a majority of
the Company's stockholders on July 21, 2003.
2 This number represents the number of shares of restricted stock
granted to eligible persons under the Plan.
AMENDMENT TO AND RESTATEMENT OF THE COMPANY'S ARTICLES OF INCORPORATION
(PROPOSAL NO. 3)
The Company was originally formed in 1994 as Renaissance Center, Inc. Our
Articles of Incorporation were restated in October of 1997 and our name was
changed to Renaissance International Group, Ltd. This restatement also
designated 3,000,000 shares of our Preferred Stock as Series A Convertible
Preferred Stock with specified rights, preferences and privileges. In June 1998,
a Certificate of Amendment was filed changing our name to RIGL Corporation and
increasing our authorized Common Stock to 50,000,000 shares. In January 1999, a
Certificate of Designations was filed with the Nevada Secretary of State
designating 2,500,000 shares of our Preferred Stock as Series B Convertible
Preferred Stock with the rights, preferences and privileges set forth therein
and our Articles of Incorporation were again restated to include such
designation. In September 1999, a Certificate of Amendment was filed with the
Nevada Secretary of State changing our name to YP.Net, Inc. In January 2002,
another Certificate of Amendment to our Articles of Incorporation was filed with
the Nevada Secretary of State increasing our authorized shares of Common Stock
to 100,000,000 and our authorized shares of Preferred Stock to 140,000,000.
Additionally, this amendment designated 45,000,000 shares of Preferred Stock as
Series C Convertible Preferred Stock and 45,000,000 shares as Series D
Convertible Preferred Stock with the rights, preferences and privileges set
forth therein. Finally
23
in June of 2002, a Certificate of Designation was filed with the Nevada
Secretary of State designating 200,000 shares of Preferred Stock as Series E
Convertible Preferred Stock with certain rights, preferences and privileges as
set forth therein.
Our Board of Directors has unanimously approved, and recommends that the
stockholders adopt, a proposal to amend and restate our Articles of
Incorporation as follows:
- change the corporate name of the Company to "YP Corp.";
- provide for the classification of the Board of Directors into three
classes of directors with staggered three-year terms;
- generally update the existing Articles of Incorporation to (a)
eliminate the designation of the Series A, Series B, Series C, and
Series D Preferred Stock since no shares of such Series have ever been
issued and the Board of Directors has recently retired such series,
(b) decrease the authorized Preferred Stock; (c) add language
concerning the indemnification of the Company's officers and
directors; (d) add language that upon dissolution of the Company, the
Company's remaining net assets are to be paid to holders of Common
Stock after any liquidation preference has been paid to Preferred
Stockholders; (e) clarify that the number of directors of the Company
may be increased or decreased as provided in the Company's Bylaws; (f)
limit the ability of stockholders to act by written consent; and (g)
require a supermajority vote of the stockholders to amend or repeal
some of the foregoing amendments; and
- restate the Articles of Incorporation by incorporating in a single
document the new amendments, to the extent that they are approved by
the stockholders at the Annual Meeting, as well as prior amendments
and restatements.
The text of the proposed Amended and Restated Articles of Incorporation is set
forth in Appendix A attached hereto.
-----------
CHANGE OF CORPORATE NAME
We are proposing to change our name to YP Corp. We believe that our
current name, YP.Net, Inc., as well as the current name of our wholly owned
subsidiary, Telco Billing, Inc., are inconsistent with our existing corporate
structure. If successful in changing our corporate name, we intend to cause
Telco Billing, Inc., our wholly owned subsidiary and the entity through which
our primary operations are conducted, to operate under the "YP.Net" or "YP.Com"
trade names. If the stockholders approve this proposal, it will become
effective upon the filing of the Amended and Restated Articles of Incorporation
with the Secretary of State of the State of Nevada. We intend to file the
Amended and Restated Articles of Incorporation as soon as practicable after the
Annual Meeting.
24
CLASSIFIED BOARD
Our Board of Directors has unanimously approved and recommended that the
stockholders approve an amendment to our Articles of Incorporation, to provide
for the classification of our Board of Directors into three classes of directors
with staggered terms of office. Section 5 of Appendix A to this Proxy Statement
sets forth the text of the proposed amendment to be added.
Our Bylaws now provide that all directors are to be elected annually to
serve until their successors have been elected and qualified. Nevada law
permits provisions in the articles of incorporation or bylaws that provide for a
classified board of directors. The proposed amendment to the Articles of
Incorporation would provide that directors will be classified into three
classes, as nearly equal in number as possible. One class of directors,
initially consisting of Messrs. Tullo and Johnson, would hold office initially
for a term expiring at the 2007 Annual Meeting; a second class of directors,
initially consisting of Messrs. Crane and Coury, would hold office initially for
a term expiring at the 2006 Annual Meeting; and a third class of directors,
initially consisting of Mr. Bergmann, would hold office initially for a term
expiring at the 2005 Annual Meeting. At each Annual Meeting following this
initial classification and election, the successors to the class of directors
whose terms expire at that meeting would be elected for a term of office to
expire at the third succeeding Annual Meeting after their election or until
their successors have been duly elected and qualified.
If the number of directors is increased by the Board of Directors and the
resultant vacancies are filled by the Board of Directors, those additional
directors will serve only until the next Annual Meeting of stockholders, at
which time they will be subject to election and classification by the
stockholders. If any director is elected by the Board of Directors to fill a
vacancy that occurs as a result of the death, resignation, or removal of another
director, that director will hold office until the Annual Meeting of
stockholders at which the director who died, resigned, or was removed would have
been required, in the regular order of business, to stand for re-election, even
though that term may extend beyond the next annual meeting of stockholders.
The proposed classified Board of Directors amendment is designed to assure
continuity and stability in our Board's leadership and policies because a
majority of the Company's directors at any given time will have prior experience
as directors with the Company. While we have not experienced any problems with
such continuity in the past, we wish to ensure that this experience will
continue. Our Board of Directors also believes that the classified Board
proposal will assist the Board in protecting the interests of our stockholders
in the event of an unsolicited offer for our Company.
Because of the additional time required to change control of our Board of
Directors, the classified board proposal will tend to perpetuate present
management. Without the ability to obtain immediate control of our Board, a
takeover bidder will not be able to take action to remove other impediments to
its acquisition of our Company, including a redemption of stockholder rights,
the terms of which create obstacles to an acquisition of our Company, if we
choose to grant such rights to our stockholders and empower our Board to effect
such a redemption. Because the proposed classified Board amendment will result
in an increase in amount of time required for a takeover bidder to obtain
control of our Company without the
25
cooperation of our Board, even if the takeover bidder were to acquire a majority
of our outstanding voting stock, it will tend to discourage certain tender
offers, perhaps including some tender offers that our stockholders may feel
would be in their best interests. The proposed classified Board amendment will
also make it more difficult for our stockholders to change the composition of
the Board even if our stockholders believe such a change would be desirable.
ELIMINATION OF PRIOR SERIES OF PREFERRED STOCK; DECREASE IN NUMBER OF PREFERRED
STOCK AND ADDITION OF INDEMNIFICATION LANGUAGE; OTHER CLARIFICATIONS.
We currently have five series of Preferred Stock designated, Series A,
Series B, Series C, Series D and Series E. To date, only the shares of Series E
Preferred Stock are issued and outstanding. Moreover, at this time we have no
intention of issuing any additional shares of Preferred Stock, except in
connection with a stockholders' rights plan, which we are considering at this
time. Accordingly, our Board of Directors believes that it is in our best
interest and the best interests of our stockholders to delete the prior
provisions designating the rights, preferences and privileges of the Series A,
Series B, Series C, and Series D Preferred Stock. Consequently, our Board of
Directors further believes that the current number of authorized shares of
Preferred Stock, which is 140,000,000, is unnecessary in light of our current
financial situation. The Board of Directors proposes to reduce the authorized
shares of Preferred Stock from 140,000,000 to 5,000,000. In the opinion of our
Board of Directors, the proposal to delete the existing terms and conditions of
the prior shares of Series A through Series D Preferred Stock and to decrease
the authorized shares of Preferred Stock to 5,000,000 will align the Company's
capital structure with its current and anticipated future needs.
We will retain our ability to authorize additional shares of Preferred
Stock with rights, preferences and privileges as determined by the Board of
Directors and without further authorization from the holders of Common Stock,
unless otherwise required by applicable law. This would permit the issuance at
various times of shares of one or more series of Preferred Stock that could be
specifically adapted to the financing needs of the Company at that time. We
have no present plans, arrangements or understandings that would require the
issuance of any additional shares of the Preferred Stock, except in connection
with a stockholders' rights plan, which we are considering at this time. Any
future issuance of shares of Preferred Stock would occur only upon a
determination by our Board of Directors that such issuance was in the best
interests of the Company and our stockholders.
The dividend and liquidation rights of our Common Stock will be subject to
the rights of any new series of Preferred Stock that may be issued and,
generally, will be junior in rights and preferences to such shares of Preferred
Stock. In addition, if additional shares of Common Stock or Preferred Stock are
issued, either book value per share, earnings per share, or both, could be
diluted due to the larger number of shares outstanding. Finally, there will be
dilution to the voting power of each share of Common Stock and each share
Preferred Stock as additional shares are issued.
The Amended and Restated Articles of Incorporation could be construed as
having an anti-takeover effect and the additional authorized shares of Preferred
Stock could be issued to a third party favored by the Board of Directors to
defend a possible third-party takeover attempt, which would give the favored
party an advantage over a competing party in a contest to acquire
26
control of the Company and remove incumbent management. Additionally, the excess
shares of Preferred Stock could be used to create a stockholder rights plan or
"poison pill" or a similar arrangement, in an effort to discourage a takeover
attempt. At this time, our Board of Directors is considering the adoption of a
stockholders' rights plan. However, we currently are not aware of any pending
takeover attempt.
We have added language to the Amended and Restated Articles of
Incorporation to clarify our obligation and ability to indemnify our officers
and directors for costs, expenses and liabilities arising out of claims or
matters for which the Company is permitted to indemnify them under applicable
Nevada law.
Finally, we have added language to the Amended and Restated Articles of
Incorporation to clarify that (i) the number of directors may be increased or
decreased as provided in the Bylaws and (ii) upon liquidation or other
dissolution, the remaining net assets of the Company, if any, will be
distributed pro-rata among the holders of Common Stock after any liquidation
preference of holders of Preferred Stock has been satisfied.
LIMITATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT
We have proposed an amendment to the Articles of Incorporation that would
prohibit the Company's stockholders from acting by written consent in lieu of a
meeting of stockholders without the Board of Directors' prior approval and
authorization of the proposed action and except as may be provided in a
designation of the preferences, limitations and relative rights of a series of
the Company's preferred stock.
The NRS and the Company's Bylaws currently permit the Company's
stockholders to take any action that may be taken by stockholders at any annual
or special meeting of stockholders without a meeting, provided this action is
consented to in writing by stockholders having not less than the number of votes
necessary to take the action at the meeting. This amendment would, if approved,
provide that any action required or permitted to be taken by the stockholders of
the Company must be effected either by written consent after approval and
authorization by the Board of Directors or at a duly called and held annual or
special meeting of stockholders. The proposed amendment provides an exception
where specified in the designation of the preferences, limitations and relative
rights of any series of the Company's preferred stock.
The Board of Directors believes that the use of a written consent procedure
in lieu of a meeting could be used in an unsolicited takeover attempt to
undermine the protections that the Company currently has in place and those that
it is proposing at the Annual Meeting. This provision provides management and
the Board of Directors with the opportunity to review any proposed action to
express their views and to take any necessary action deemed appropriate by them.
A corollary of this proposal may be to preclude a takeover bidder who
acquires a majority of the outstanding shares of the Company's Common Stock from
proposing a merger, business combination, or other similar transaction or
proposing the removal of directors, outside the process of holding a stockholder
meeting. Because of the delay that may be involved in
27
undertaking fundamental corporate changes requiring stockholder action, this
provision may deter a future takeover attempt, or business combination, even if
a substantial number of the Company's stockholders favored that takeover attempt
or other action. The provision could also result in incumbent directors
retaining their positions until the next Annual Meeting at which their terms
expire, even though holders of a majority of the Company's Common Stock desire a
change and could otherwise seek to remove directors through the written consent
procedure.
SUPERMAJORITY APPROVAL FOR CERTAIN AMENDMENTS
Assuming that the foregoing amendments are approved and adopted, it is
appropriate to change the manner in which the Articles of Incorporation may be
further amended. Currently, under the NRS, our Articles of Incorporation may be
amended upon the affirmative vote of a plurality of the votes cast. This
Proposal would provide for amendment of, and reserve to the Company the right to
amend the provisions concerning the classified Board of Directors, the
limitations on actions by written consent of the stockholders and future
amendments only upon the affirmative vote of the holders of 66-2/3% of the
outstanding capital stock of the Company entitled to vote. Setting a higher
threshold for amendment of the newly adopted provisions will ensure continuity
and not subject the Company to the instability of having its corporate
governance regularly altered.
CONSOLIDATION OF PRIOR AMENDMENTS, RESTATEMENTS AND CERTIFICATES OF DESIGNATION
IN A SINGLE AMENDED AND RESTATED ARTICLES OF INCORPORATION
As discussed above, the current Articles of Incorporation consist of the
original Articles of Incorporation as amended and restated by numerous
Certificates of Amendment, Restatements and Certificates of Designation
effecting prior name changes and the designations of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, and Series E Preferred Stock. Because of the extensive changes that have
been made to the original Articles of Incorporation, as well as the proposed
amendments discussed above, the Board of Directors believes it is advisable to
restate the Articles of Incorporation in full to the extent the proposed
amendments are approved by the stockholders, rather than file a separate
Certificate of Amendment to incorporate the approved amendments, thus
incorporating all existing provisions, as amended in a single document.
VOTE REQUIRED
The affirmative vote of the holders of a majority of our Common Stock
issued and outstanding as of the record date and present in person or
represented by proxy and entitled to vote at the Annual Meeting will be required
to approve the foregoing amendments and restatement to our Articles of
Incorporation. Because approval of the Restated Articles of Incorporation
requires the affirmative vote of holders of a majority of the shares of our
Common Stock outstanding and entitled to vote thereon, abstentions and broker
non-votes will have the same effect as votes cast at the Annual Meeting against
the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE
RESTATED ARTICLES OF INCORPORATION.
28
INDEPENDENT AUDITORS
The Board of Directors has not yet selected an independent auditor to
examine the annual consolidated financial statements of the Company and its
subsidiary for fiscal year 2004. The Board of Directors is in the process of
considering its needs for the fiscal year and expects to make a decision in the
near future.
Representatives of Epstein, Weber & Conover, P.L.C. our independent
auditors for fiscal 2003 are expected to be present at the Annual Meeting. They
will have the opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions.
AUDIT FEES
The aggregate fees billed by Epstein, Weber & Conover, P.L.C. for
professional services rendered for the audit of the Company's annual financial
statements for the fiscal year ended September 30, 2003 and for the reviews of
the financial statements in the Company's quarterly reports on Form 10-Q for
that fiscal year were $53,000, as compared to $48,175 for the fiscal year ended
September 30, 2002.
AUDIT RELATED FEES
The aggregate fees billed by Epstein, Weber & Conover, P.L.C. for
professional services rendered in connection with services other than for the
audit for the fiscal year ended September 30, 2003 were $15,035. These services
consisted of the review and discussion of the accounting and tax treatment
related to the 2003 Stock Plan, an internal controls review and United States
Securities and Exchange Commission and other regulatory compliance.
TAX FEES
Epstein, Weber & Conover, P.L.C. did not render professional tax services
to the Company for the year ended September 30, 2003 or for the fiscal year
ended September 30, 2002.
ALL OTHER FEES
There were no other services rendered by Epstein, Weber & Conover, P.L.C.
to the Company during each of the fiscal years ended September 30, 2003 and
2002.
The Board of Directors has considered whether the provision of the
above-described services is compatible with maintaining Epstein, Weber &
Conover, P.L.C.'s independence and believes the provision of such services is
not incompatible with maintaining such independence.
29
STOCKHOLDER PROPOSALS AND NOMINATIONS
To be considered for inclusion in our proxy materials relating to our 2005
Annual Meeting, stockholder proposals must be received at our principal
executive offices by November 2, 2004, which is 120 calendar days prior to the
anniversary of the mailing date for this year's proxy materials. All stockholder
proposals must be in compliance with applicable laws and regulations in order to
be considered for possible inclusion in the proxy statement and form of proxy
for the 2005 Annual Meeting.
OTHER MATTERS
As of the date of this Proxy Statement, our Board of Directors does not
intend to present at the Annual Meeting any matters other than those described
herein and does not presently know of any matters that will be presented by
other parties. If any other matter is properly brought before the meeting for
action by stockholders, proxies in the enclosed form returned to us will be
voted in accordance with the recommendation of the Board of Directors or, in the
absence of such a recommendation, in accordance with the judgment of the proxy
holder.
A copy of our Annual Report for the year ended September 30, 2003 has been
mailed to you currently with this Proxy Statement. This Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.
We have filed an Annual Report on Form 10-KSB for the year ended September
30, 2003 with the Securities and Exchange Commission. You may obtain, free of
charge, a copy of the Form 10-KSB by writing our Corporate Secretary at our
principal executive offices at 4840 East Jasmine Street, Suite 105, Mesa,
Arizona 85205-3321.
ELECTRONIC DELIVERY OF FUTURE ANNUAL MEETING MATERIALS
We are offering our stockholders the opportunity to consent to receiving
our future proxy materials and annual reports electronically by providing the
appropriate information when voting via the Internet. Electronic delivery could
save us a significant portion of the costs associated with printing and mailing
Annual Meeting materials, and we hope that our stockholders find this service
convenient and useful. If you consent and we elect to deliver future proxy
materials and/or annual reports to you electronically, then we will send you a
notice (either by electronic mail or regular mail) explaining how to access
these materials but will not send you paper copies of these materials unless you
request them. We may also choose to send one or more items to you in paper form
despite your consent to receive them electronically. Your consent will be
effective until you revoke it by terminating your registration at the website
WWW.INVESTORDELIVERY.COM if you hold shares at a brokerage firm or bank
participating in the ADP program, or by contacting our transfer agent, Registrar
and Trust Company, if you hold shares in your own name.
By consenting to electronic delivery, you are stating to YP.Net, Inc. that
you currently have access to the Internet and expect to have access in the
future. If you do not have access to the Internet, or do not expect to have
access in the future, please do not consent to electronic
30
delivery because we may rely on your consent and not deliver paper copies of
future Annual Meeting materials. In addition, if you consent to electronic
delivery, you will be responsible for your usual Internet charges (e.g., online
fees) in connection with the electronic delivery of the proxy materials and
annual report.
YP.Net, Inc.
/s/ DeVal Johnson
DeVal Johnson
Secretary
March 1, 2004
31
YP.NET, INC.
ANNUAL MEETING OF STOCKHOLDERS - APRIL 2, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held on April 2, 2004 and the
Proxy Statement and appoints Angelo Tullo and David Iannini, and each of them,
the proxy of the undersigned, with full power of substitution to vote all shares
of Common Stock of YP.Net, Inc. (the "Company") that the undersigned is entitled
to vote, either on his or her own behalf or on behalf of any entity or entities,
at the Annual Meeting of Stockholders of the Company to be held at the Sheraton
Hotel, 200 West Centennial Way, Mesa, Arizona 85201 on April 2, 2004 at 10:00
a.m. local time, and at any adjournment or postponement thereof, with the same
force and effect as the undersigned might or could do if personally present
thereat. The shares represented by this proxy shall be voted in the manner set
forth on the reverse side.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
1. Election of Directors
[ ] FOR ALL Angelo Tullo
[ ] WITHHOLD ALL Gregory B. Crane
[ ] FOR ALL EXCEPT Daniel Coury, Sr.
(See instructions below) DeVal Johnson
Peter Bergmann
TO WITHHOLD AUTHORITY TO VOTE, MARK "FOR ALL EXCEPT" AND WRITE THE NOMINEE'S
NAME IN THE LIST BELOW.
2. To amend the Company's 2003 Stock FOR AGAINST ABSTAIN
Plan to increase the shares available [ ] [ ] [ ]
for issuance from 3,000,000 to
5,000,000.
3. To amend and restate the Company's FOR AGAINST ABSTAIN
Articles of Incorporation as [ ] [ ] [ ]
described in the Proxy Statement.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before this meeting.
Please disregard the following if you have previously provided your consent
decision.
[ ] By checking the box to the left, I consent to future delivery of annual
reports, proxy statements, prospectuses other materials and shareholder
communications electronically via the Internet at a webpage which will be
disclosed to me. I understand that the
Company may no longer distribute printed materials to me regarding any
future stockholder meeting until such consent is revoked. I understand
that I may revoke my consent at any time by contacting the Company's
transfer agent, Registrar and Trust Company, 10 Commerce Drive, Cramford,
NJ 07016 and that costs normally associated with electronic delivery, such
as usage and telephone charges as well as any costs I may incur in
printing documents, will be my responsibility.
IF YOU RETURN YOUR PROPERLY EXECUTED PROXY, WE WILL VOTE YOUR SHARES AS YOU
DIRECT. IF YOU DO NOT SPECIFY ON YOUR PROXY HOW YOU WANT TO VOTE YOUR SHARES, WE
WILL VOTE THEM FOR PROPOSAL 1, 2, 3 AND 4 AND IN THE DISCRETION OF THE PROXIES
ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENTS THEREOF.
Please sign EXACTLY as your name appears hereon. When
signing as attorney, executor, administrator, trustee
or guardian, please give your full title as such. If
more than one trustee, all should sign. If shares are
held jointly, both owners must sign.
__________________________ _____________, 2004
Signature Date
__________________________ _____________, 2004
Signature (Joint Owners) Date
Appendix A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
YP.NET, INC.
YP.NET, INC. (the "Corporation"), a corporation organized and existing under the
Nevada Revised Statues ("NRS") of the State of Nevada does hereby certify:
I. The Corporation, pursuant to the provisions of NRS 78.403, hereby adopts
these Amended and Restated Articles of Incorporation (the "Restated
Articles"), which accurately restate and integrate the Restated Articles of
Incorporation filed on January 11, 1999 and all amendments thereto or
Certificates of Designation filed thereafter that are in effect to date as
permitted by NRS 78.385.
II. Each amendment made by these Restated Articles has been effected in
conformity with the provisions of the NRS. The Restated Articles and each
amendment thereto were duly approved and adopted by unanimous written
consent of the Corporation's Board of Directors on December __, 2004. These
Restated Articles and each amendment made hereunder were approved and
adopted by the holders of at least a majority of the Corporation's issued
and outstanding capital stock entitled to vote on such amendments at the
Corporation's Annual Meeting of Stockholders held on April 2, 2004. The
number of shares outstanding at the time of such adoption was _________ and
the number of shares entitled to vote thereon was ________. The number of
shares that voted to approve the amendments and these Restated Articles was
________, which was sufficient for approval.
III. The original Articles of Incorporation and all amendments, restatements and
supplements thereto are hereby superseded by these Restated Articles, which
are as follows:
1. Name. The name of the corporation is YP Corp. (the "Corporation").
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2. Capital Stock. The Corporation is authorized to issue two classes of
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stock. One class of stock shall be Common Stock, par value, $0.001. The second
class of stock shall be Preferred Stock, par value $0.001. This Corporation is
authorized to issue 100,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock.
2.1. Common Stock. Each share of Common Stock issued and outstanding
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shall be entitled to one vote on all matters. Shares of such Common Stock may be
issued for such consideration and for such corporate purposes as the Board of
Directors may from time to time determine. Fully paid shares of Common Stock of
this Corporation shall not be liable to any further call or assessment.
Dividends may be declared and paid on the Common Stock only out of funds legally
available therefore. Upon the sale of substantially all of the stock or assets
of the Corporation in a non-public transaction or dissolution, liquidation, or
winding up of the Corporation, whether voluntary or involuntary, after all
liquidation preferences payable to any series of Preferred Stock entitled
thereto have been satisfied, the remaining net assets of the Corporation shall
be distributed to the holders of Common Stock and any similarly situated
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stockholders who are not entitled to any liquidation preference (or, if there be
an insufficient amount to pay all such stockholders, then ratably among such
holders).
2.2. Preferred Stock.
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(a) The Preferred Stock not so specifically designated may be
designated in the future by action of the Board of Directors of the Corporation
and otherwise in accordance with the applicable provisions of the NRS. The
designated series of Preferred Stock shall have such powers, designations,
preferences and relative, participating or optional or other special rights and
qualifications, limitations or restrictions thereof as shall be expressed in the
resolution or resolutions providing for the issue of such stock adopted by the
Corporation's Board of Directors and may be made dependent upon facts
ascertainable outside such resolution or resolutions of the Board of Directors,
provided that the manner in which such facts shall operate upon such powers,
designations, preferences, rights and qualifications, limitations or
restrictions of such class or series of stock is clearly and expressly set forth
in the resolution or resolutions providing for the issuance of such stock by the
Board of Directors.
(b) The shares of each class or series of the Preferred Stock
may vary from the shares of any other class or series thereof in any respect.
The Board of Directors may increase the number of shares of the Preferred Stock
designated for any existing class or series by a resolution adding to such class
or series authorized and unissued shares of the Preferred Stock not designated
for any other class or series. The Board of Directors may decrease the number of
shares of the Preferred Stock designated for any existing class of series of the
Preferred Stock and the shares so subtracted shall become authorized, unissued
and undesignated shares of the Preferred Stock.
3. Designation and Amount of Series E Convertible Preferred Stock. In
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accordance with the foregoing Section 2.2, the Corporation has authorized a
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series of Preferred Stock, which shall be designated as Series E Convertible
Preferred Stock (the "Series E Preferred Convertible Stock"). The number of
shares constituting the Series E Preferred Stock shall be 200,000, par value
$0.001. The Series E Preferred Stock has the voting powers, preferences,
relative, participating, limitations, qualifications, optional and other special
rights and the qualifications, limitations and restrictions thereof that are set
forth below.
3.1. Dividends.
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(a) The holders of outstanding shares of Series E Convertible
Preferred Stock shall be equally entitled to receive preferential dividends in
cash out of any funds of the Corporation legally available at the time for
declaration of dividends, at the dividend rates applicable to each such series,
as set forth herein, before any dividend or other distribution will be paid or
declared and set apart for payment on any shares of any Common Stock, or other
class of stock presently authorized or to be authorized (the Common Stock, and
such other stock being hereinafter collectively the "Junior Stock") as follows:
Series E Convertible Preferred Stock shall receive dividends at the rate of 5%
per annum on the liquidation preference per shares, payable each March 31, June
30, September 30 and December 31, commencing with the first such date following
the issuance of such stock. Dividends shall accumulate from the date of
issuance, until the first payment date, at which time all accumulated dividends
and dividends
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from the date of issuance shall be paid if funds are legally available at such
time. If funds are not legally available at such time, dividends shall continue
to accumulate until they can be paid from legally available funds.
(b) The dividends on the Series E Convertible Preferred Stock at
the rate provided above shall be cumulative whether or not earned so that, if at
any time full cumulative dividends at the rate aforesaid on all shares of the
Series E Convertible Preferred Stock then outstanding from the date from and
after which dividends thereon are cumulative to the end of the quarterly
dividend period next preceding such time shall not have been paid or declared
and set apart for payment, or if the full dividend on all such outstanding
Series E Convertible Preferred Stock for the then current dividend period shall
not have been paid or declared and set apart for payment (but without interest
thereon) before any sum shall be set apart for or applied by the Corporation or
a subsidiary of the Corporation to the purchase, redemption or other acquisition
of any shares of any other class of stock ranking on a parity with the Series E
Convertible Preferred Stock ("Parity Stock") and before any dividend or other
distribution shall be paid or declared and set apart for payment on any Junior
Stock and before any sum shall be set aside for or applied to the purchase,
redemption or other acquisition of Junior Stock.
(c) Dividends on all shares of the Series E Convertible
Preferred Stock shall begin to accrue and be cumulative from and after the date
of issuance thereof. A dividend period shall be deemed to commence on the day
following a quarterly dividend payment date herein specified and to end on the
next succeeding quarterly dividend payment date herein specified.
3.2. Liquidation Preference. Upon the sale of substantially all of
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the stock or assets of the Corporation in a non-public transaction or
dissolution, liquidation, or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Series E Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, before any
distribution or payment is made upon the Common Stock or any other series or
Preferred Stock, an amount in cash equal to $.30 per share, plus any accrued but
unpaid dividends (or, if there be an insufficient amount to pay all Series E
Convertible Preferred Stockholders, then ratably among such holders).
3.3. Voting Rights. The holders of shares of Series E Convertible
--------------
Preferred Stock shall have no voting rights, except as required by law.
3.4. Conversion of Series E Convertible Preferred Stock.
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(a) Holder's Right to Convert.
(i) Conversion. The record Holder of the Series E
Convertible Preferred Stock shall be entitled, after two years from the initial
issuance of the Series E Convertible Preferred Stock and from time to time
thereafter, at the office of the Corporation or any transfer agent for the
Series E Convertible Preferred Stock, to convert all or portions of the Series E
Convertible Preferred Stock held by such Holder, on a one for one basis into
shares of the Common Stock, together with payment by the holder of $.045 per
converted share.
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(ii) Mechanics of Conversion.
1. In order to convert Series E Convertible Preferred
Stock into full shares of Common Stock, the holder shall (i) transmit a
facsimile copy of the fully executed notice of conversion in the form provided
by the Corporation ("Notice of Conversion") to the Corporation, which notice
shall specify the number of shares of Series E Convertible Preferred Stock to be
converted, prior to midnight, New York City time (the "Conversion Notice
Deadline"), on the date of conversion specified on the Notice of Conversion, and
(ii) promptly surrender the original certificate or certificates therefor, duly
endorsed, and deliver the original Notice of Conversion by either overnight
courier or 2-day courier, to the office of the Corporation or of any transfer
agent for the Series E Convertible Preferred Stock, together with payment by
certified or bank check for $.045 per converted share; provided, however, that
the Corporation shall not be obligated to issue certificates evidencing such
Series E Convertible Preferred Stock unless either the certificates evidencing
such Series E. Convertible Preferred Stock are delivered to the Corporation or
its transfer agent as provided above or the Holder notifies the Corporation or
its transfer agent that such certificates have been lost, stolen or destroyed.
Upon receipt by the Corporation of evidence of the loss, theft, destruction or
mutilation of the certificate or certificates ("Stock Certificates")
representing shares of Series E Convertible Preferred Stock and (in the case of
loss, theft or destruction) of indemnity or security reasonably satisfactory to
the Corporation, and upon surrender and cancellation of the Stock
Certificate(s), if mutilated, the Corporation shall execute and deliver new
Stock Certificate(s) of like tenor and date. No fractional shares of Common
Stock shall be issued upon conversion of the Series E Convertible Preferred
Stock. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Corporation shall pay cash to such Holder in an amount equal to
such fraction multiplied by the value of the Common Stock as determined in good
faith by the Corporation's Board of Directors. In the case of a dispute as to
the calculation of the Conversion Price, the Corporation's calculation shall be
deemed conclusive absent manifest error.
2. The Corporation shall issue and deliver at the
address of the Holder on the books of the Corporation (i) a certificate or
certificates for the number of shares of Common Stock equal to the Conversion
Number for the shares of Series E Convertible Preferred Stock being so converted
and (ii) a certificate representing the balance of the shares of Series E
Convertible Preferred Stock not so converted, if any. The date on which
conversion occurs (the "Date of Conversion") shall be deemed to be the date set
forth in such Notice of Conversion, provided that the copy of the Notice of
Conversion is faxed to the Corporation before midnight, New York City time, on
the Date of Conversion. The person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date.
(b) Adjustment to Conversion.
(i) If, prior to the conversion of all Series E Convertible
Preferred Stock, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event, as a result of which
shares of Common Stock of the Corporation shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Corporation or another entity, then the
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holders of Series E Convertible Preferred Stock shall thereafter have the right
to purchase and receive upon conversion of Series E Convertible Preferred Stock,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore issuable upon conversion,
such shares of stock and/or securities as may be issued or payable with respect
to or in exchange for the number of shares of Common Stock immediately
theretofore purchasable and receivable upon the conversion of Series E
Convertible Preferred Stock held by such holders had such merger, consolidation,
exchange of shares, recapitalization or reorganization not taken place, and in
any such case, appropriate provisions shall be made with respect to the rights
and interests of the Holders of the Series E Convertible Preferred Stock to the
end that the provisions hereof (including, without limitation, provisions for
adjustment of the number of shares issuable upon conversion of the Series E
Convertible Preferred Stock otherwise set forth in this Section (b)) shall
thereafter be applicable, as nearly as may be practicable, in relation to any
shares of stock or securities thereafter deliverable upon the exercise hereof.
The Corporation shall not effect any transaction described herein unless the
resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligation to deliver to the holders of the Series E
Convertible Preferred Stock such shares of stock and/or securities as, in
accordance with the foregoing provisions, the holders of the Series E
Convertible Preferred Stock may be entitled to purchase.
(ii) If any adjustment under this section would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional shares shall be disregarded, and the number of
shares of Common Stock issuable upon conversion shall be the next higher number
of shares.
4. Perpetual Existence. The existence of the Corporation will be
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perpetual.
5. Board of Directors. The affairs of the Corporation shall be
--------------------
governed by a Board of Directors. Subject to any rights to elect directors
("Preferred Stock Directors") granted to the holders of any series of Preferred
Stock as set forth in the Certificate of Designation for such series or class of
Preferred Stock, the number of persons to serve on the Board of Directors, and
the number of directors in each class of directors, shall be fixed as set forth
in the Bylaws and such number may be increased or decreased from time to time in
such manner as provided by the Bylaws, but the number of directors shall never
be less than three. Directors of the Corporation need not be residents of the
State of Nevada and need not own shares of the Corporation's stock.
5.1. Classified Board.
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(a) Other than with respect to any Preferred Stock Directors,
the Board of Directors shall be divided into three classes as nearly equal in
number as possible (each, a "Class"), known as Class I, Class II and Class III.
Directors of Class I first chosen at the annual meeting of stockholders held in
2004 shall hold office until the third annual meeting of the stockholders
following their election, such annual meeting of the stockholders to be held in
2007; directors of Class II first chosen at the annual meeting of stockholders
held in 2004 shall hold office until the second annual meeting following their
election, such annual meeting of the stockholders to be held in 2006; and
directors of Class III first chosen at the annual meeting of stockholders held
in 2004 shall hold office until the first annual meeting following their
election, such annual meeting of the stockholders to be held in 2005. At each
annual meeting of
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stockholders beginning with the annual meeting of stockholders held in 2005,
directors chosen to succeed those whose terms then expire shall be elected for a
term of office expiring at the third succeeding annual meeting of stockholders
after their election. Other than with respect to any Preferred Stock Directors,
when the number of directors is changed, any newly created directorships or any
decreases in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as possible. When the number of directors
is increased by the Board of Directors (other than as a result of the
establishment of any Preferred Stock Directors) and the resultant vacancies are
filled by the Board of Directors, such additional directors shall serve only
until the next annual meeting of stockholders, at which time they shall be
subject to election and classification by the stockholders. In the event that
any director is elected by the Board of Directors to fill a vacancy that occurs
as a result of the death, resignation, or removal of another director, such
director shall hold office until the annual meeting of stockholders at which the
director who died, resigned, or was removed would have been required, in the
regular order of business, to stand for re-election, even though such term may
thereby extend beyond the next annual meeting of stockholders. Each director who
is elected as provided in this Section 5 shall serve until his or her successor
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is duly elected and qualifies.
(b) Notwithstanding any other provision of these Amended and
Restated Articles of Incorporation or the Bylaws of the Corporation, any
director or all the directors of a single class (but not the entire Board of
Directors) of the Corporation may be removed, at any time, but only for cause
and only by the affirmative vote of the holders of at least 66 2/3% of the
voting power of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose. Notwithstanding the foregoing, whenever the holders of any one or more
series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
preceding provisions of this Article 5 shall not apply with respect to the
director or directors elected by such holders of preferred stock.
6. Action by Written Consent. No action that is required or permitted
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to be taken by the stockholders of the Corporation at any annual or special
meeting of stockholders may be effected by written consent of stockholders in
lieu of a meeting of stockholders, unless the action to be effected by written
consent of stockholders and the taking of such action by such written consent
have expressly been approved in advance by the Board of Directors of the
Corporation.
7. Cumulative Voting. There shall be no cumulative voting by
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stockholders of any class or series in the election of directors of the
Corporation.
8. Distributions to Stockholders. Except as set forth in these
-------------------------------
Amended and Restated Articles or the Certificate of Designations for any series
or class of Preferred Stock, the Board of Directors of the Corporation may, from
time to time, distribute to its stockholders a portion of its assets in cash or
property, whether or not the distribution, after giving it effect, would cause
the Corporation's total assets to be less than the sum of the total liabilities
plus the amount that would be needed, if dissolution were to occur at the time
of distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution. The Board of Directors may base a determination that a
distribution is permitted hereunder on (i) financial statements prepared on the
basis of accounting practices that
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are reasonable under the circumstances; (ii) a fair valuation, including, but
not limited to, unrealized appreciation and depreciation; or (iii) any other
method that is reasonable in the circumstances.
9. Director and Officer Liability. A director and officer of the
---------------------------------
Corporation shall not be personally liable to the Corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer,
except for liability (i) for acts or omissions that involve intentional
misconduct, fraud or a knowing violation of law, or (ii) for authorizing any
distribution in violation of Section 78.300 of the NRS. If the NRS is amended
after approval by the stockholders of this Article to authorize corporate action
further eliminating the personal liability of directors or officers, then the
liability of a director or officer of the Corporation shall be eliminated or
limited to the fullest extent permitted by the NRS, as so amended. Any repeal or
modification of the foregoing paragraph by the stockholders of the Corporation
shall not adversely affect any right or protection of a director or officer of
the Corporation existing at the time of such repeal or modification. No
amendment to the NRS that further limits the acts, omissions or transactions for
which elimination or limitation of liability is permitted shall affect the
liability of a director or officer for any act, omission or transaction, which
occurs prior to the effective date of such amendment.
10. Indemnification. The Corporation shall, to the fullest extent
---------------
permitted by Section 78.75 of the NRS, as the same may be amended, supplemented
or replaced from time to time, indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Pursuant to said Section 78.751 of the NRS, the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the Corporation.
11. Amendment of Articles of Incorporation. Subject to the provisions
--------------------------------------
hereof, the Corporation reserves the right to repeal, alter, amend or rescind
any provision contained in these Restated Articles in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders herein are
granted subject to this reservation. Notwithstanding the foregoing at any time
and from time to time, the provisions set forth in Article 5 (Classified Board)
and Article 8 (Action by Written Consent) may be repealed, altered, amended or
rescinded in any respect only if the same is approved by the affirmative vote of
the holders of not less than 66 2/3% of the voting power of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as a single class) cast at a
meeting of the stockholders called for that purpose (provided that notice of
such proposed adoption, repeal, alteration, amendment or rescission is included
in the notice of such meeting).
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IN WITNESS WHEREOF, the undersigned President and Chief Executive Officer
has executed these Restated Articles as of April __, 2004.
YP.NET, INC., a Nevada corporation
Angelo Tullo
President and Chief Executive Officer
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